Hyundai’s US Growing Pains

GLENDALE, CA - JANUARY 05: Hyundai cars are on display in the showroom of the Hyundai dealership on January 5, 2011 in Glendale, California. Hyundai Motor Co. market share in the United States climbed just short of 5% in 2010. United States auto sales rose 11% in December. (Photo by Kevork Djansezian/Getty Images)

After a decade of major gains in the U.S., Hyundai finds itself with a good problem. Its U.S. plants are close to hitting full capacity, so the Korean automaker can do little to meet strong demand for the Sonata, Elantra, or Santa Fe.

To say Hyundai is leaving sales on the table would be an understatement. While sales are up 9.5% this year, that trails the industry as a whole which is up 14%. This is one reason why Hyundai’s market share in the U.S. has dropped two tenths of a percent to 5%.

It also doesn’t help that Toyota is enjoying a resurgence in sales.

That’s the downside to having a product line-up that is red-hot right now. Look at the day supply of vehicles for various brands, according to Ward’s Auto Inventory Report:

Ward's Auto Inventory Report

Brand

Day Supply

Hyundai

21

Subaru

32

Honda

45

Toyota

48

Industry Avg.

55

Nissan

56

Ford

56

VW

72

Chevrolet

75

Source: Ward's

For Hyundai, the decision will soon be when to add more production capacity to North America. It takes a couple years to get a new plant up and running. Hyundai has been emphatic in stating that its focus right now is on maintaining quality and not expanding production. Fair enough. The Korean automaker does not want to make the same mistake Toyota made a decade ago of expanding so aggressively that its quality slipped. (Read More: Consumer Reports Says Ford Touch-Screen System "Stinks")

That said, make no mistake about the importance of the visit to the U.S. this week by Hyundai’s chairman Chung Mong-koo. He is meeting with executives at Hyundai’s U.S. headquarters and will visit the Hyundai Plant in Alabama and Kia plant in Georgia. Officially, Hyundai says its chairman is not in the U.S. to discuss future expansion plans here. When I talked with auto industry veterans who have worked with automakers as they added or expanded plants, all of them said the same thing: Expansion is on the radar for Hyundai.

In July the U.S. passed South Korea to become the second largest market in the world for Hyundai. China is still number one and will be for the foreseeable future. It is here in the U.S. where Hyundai faces some tough choices. There are reports in Korea that Hyundai’s Chairman will be discussing Hyundai’s “lackluster” sales in the U.S. The reports all gloss over the fact that Hyundai’s growth here is, to a large extent, constrained by capacity.